WASHINGTON (AFX) - The Federal Open Market Committee cut its key fed
funds
interest rate to 4.5 pct from 5.0 pct.
In a related move, the Federal Reserve Board lowered its largely
symbolic
discount rate to 4.0 pct from 4.5 pct.
This is the fourth reduction in the federal funds rate since the
beginning
of the year, and the second time the FOMC has announced an inter-meeting
rate
cut. The FOMC began the current easing cycle with a surprise 50 basis point
rate
cut on Jan 3.
The FOMC rate cut was unexpected. Most Wall Street analysts had expected
the
FOMC to wait until the scheduled May 15 meeting to cut the federal funds
rate by
50 basis points.
Looking forward, the FOMC said that the risks continue to be tilted
toward
economic weakness/are neutral with respect to economic weakness and
inflationary
pressure.
The FOMC decided in a conference call at 8.30 am this morning to go
ahead
with the rate cut decision, according to a Fed spokesman.
The Federal Reserve Board voted unanimously to cut the discount rate,
the
spokesman added.
In a statement, the FOMC said that "capital investment has continued to
soften, and the persistent erosion in current and expected profitability, in
combination with rising uncertainty about the business outlook seems poised
to
dampen capital spending going forward."
The FOMC concluded that this "potential restraint," along with the
possible
negative impact of asset price declines on consumption, "and the risk of
slower
growth abroad, threatens to keep the pace of economic activity unacceptably
weak."
"As a consequence, the (FOMC) agreed that an adjustment in the stance of
policy is warranted during this extended intermeeting period," the FOMC
said.
The Fed funds rate is now at its lowest level since May 1994.
The FOMC will meet again on May 15.
cxa/

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